The last 20 years have brought about massive consolidation of market power in almost every industry.
The numbers are staggering. According to Nobel Prize economist Joseph Stiglitz, three firms control:
- 89 percent market share in social networking sites
- 87 percent in home improvement stores
- 89 percent in pacemaker manufacturing
- 75 percent in beer
You don't need to be an economist to see the end game. Companies (including technology market leaders) are bundling numerous categories of products. For example, Microsoft has dramatically expanded its suite beyond Office 365 to include Skype, Teams and Power BI.
While the battle lines have been drawn over customers, acquisition cost and customer lifetime value, the war is for data and insight. Once marketers have access to a wide swath of data, they will be able to leverage artificial intelligence to predict future behavior. Put another way, the intersection between consolidated market power and the digital mashup will become a self-fulfilling prophecy, providing even greater advantage for the largest companies.
You've probably heard people grumble that the government should do something about Amazon and other companies monopolizing product categories. Yet with the notable exception of United States v. Microsoft, our government has been slow to act. The federal government does not take on the role of the fairness police; they take anti-trust action when they think consumers will pay more because competition has been stifled. While some see Amazon's actions as predatory, no one could say they have resulted in higher prices. So, don't hold your breath.
To muddy the water further, the current trade disputes, Brexit and mounting frustration with US tech companies in Europe are leading us to a place where varying legal frameworks will govern intellectual property, piracy and more. Also, should China and the companies that operate there demonstrate indifference to privacy rights, they may have cost advantages over US firms.
Mid-market companies seeking to survive this onslaught of competition will need to work even harder to stay relevant. Key strategies include:
1. Bundle wisely.
I often use Square as an example of a company that entered a market with shock and awe. It took Square less than a decade to replace companies that took 100 years to erect (such as NCR). Square's offer started with a strategy often used in Silicon Valley: recombining. In effect, it used technologies and tools already in play and re-bundled them to its competitive advantage.
In Square's initial adoption phase, its application leveraged devices retailers already had or could acquire at low cost, such as iPhones or iPads. It applied a slightly nuanced payment technology. Today, Square offers everything from devices to inventory management and financing. Private titans will need to incorporate this way of thinking to compete with the FAANG companies (Facebook (FB), Amazon (AMZN), Apple (AAPL), Netflix (NFLX), and Alphabet (GOOG)) and other consolidating enterprises.
2. Acquire disruptive technology.
Companies are often conflicted on the buy, build or rent decision. The AI era is marshaling in a plethora of startups (more in China than in the US) who are leading the charge in AI. The race for these companies is driving up some remarkable valuations as Facebook, Amazon, Apple, Microsoft, Netflix and others attempt to control the market.
Given the tremendous costs to scale AI, acquisition may still be the most viable option. The further a company drifts from its core competency, the greater the argument to acquire. Among the most significant merger and acquisition trends in 2018 was non-technology companies buying technology companies.
3. Develop your analytics engine.
Salesforce's recent effort to acquire Tableau is telling, as a counter punch to Microsoft's Power BI and other analytics platforms. Today, an enterprising CTO can pull data from multiple sources into one dashboard and manipulate to suit. More and more, companies are building their entire IT architecture with this end in mind.
To develop meaningful analytics will require being close to customers. If Target sells an Adidas shoe, it is the entity that will capture and analyze customer data.
4. Enter into alliances.
This phase of market development is likely to create some interesting bedfellows. In an age of open source and co-revenue, we have moved past companies such as Amazon and eBay who engage with third parties to scale.
Consider T-Mobile's $3.5 billion dollar deal with Nokia to develop 5G technology. While there have been partnerships between hardware and software providers for years, our quest for integration will only promote such partnerships.
Perhaps no business combination is more telling than the alliance between Microsoft and Walmart. Could it be more obvious that this is a direct response to Amazon?
And that is the point exactly. To survive in the race to control AI and consumer data, mid-market companies will have to pull out the stops to compete.